Friday June 8, 2012
Islamic private equity investments in M’sia to quadruple to RM10bil
KUALA LUMPUR: Islamic private-equity investments are poised to quadruple in Malaysia to US$3.1bil (RM9.7bil) in five years on government incentives, according to the industry's biggest fund manager.
CIMB Islamic Bank Bhd, which oversees RM1.7bil of funds that invest in unlisted companies, was handling more cash for state institutions and benefiting from tax exemptions on fees until 2016, Kuala Lumpur-based chief executive officer Badlisyah Abdul Ghani said in an interview. Syariah-compliant regulations and fund-raising options were developed enough to support growth in the market, which had about RM2.5bil in assets, he said.
Private-equity investments worldwide exceeded US$210bil last year, down from a peak of US$395bil before the global credit crisis, according to a report from London-based industry group TheCityUK. Malaysia had the potential to attract Muslim wealth, including some of the US$1 trillion of Middle Eastern money invested outside the region, Tan Sri Nor Mohamed Yakcop, minister in the Prime Minister's Department, said on May 21.
“The prospects for Islamic private equity are there,” Ahmad Lutfi Abdull Mutalip, head of the financial services and Islamic banking practice at Kuala Lumpur-based law firm Azmi & Associates, said in an interview on Tuesday. “Malaysia has companies with good growth potential and the Government has been giving them attention.”
Private-equity investors from the Middle East had turned to Malaysia and other South-East Asian nations, John Sandwick, manager and founder of Geneva-based Islamic Wealth & Asset Management SA, said in an e-mail.
The Government accounted for 54% of the US$1.7bil in total assets managed by private equity and venture-capital funds last year, Darawati Hussain, the former chairman of the Malaysian Venture Capital & Private Equity Association representing 28 members, said in an e-mail. That includes both Islamic and non-Islamic. “The industry is still in the nascent stages and has a lot of room to grow.”
In private equity, investors target a company with the aim of improving its financial health for a possible future sale or initial-public offering, while in venture capital, funds are placed in new start-ups or small businesses. Under syariah law, investments in businesses such as those involving, tobacco, alcohol, pork, prostitution and some entertainment establishments are forbidden because they are deemed unethical.
Navis Capital Partners complied with syariah law when it invested in local fiber-packaging company Siangpack Sdn and also when KFH Asset Management Sdn purchased a stake in Singapore's Pacific Healthcare Holdings Ltd, according to an e-mail on Wednesday from the association.
Malaysia pioneered Islamic finance 30 years ago and is a global hub for syariah-compliant services. The country has the world's biggest market for sukuk, or debt that complies with the religion's ban on interest.
Some private-equity deals might be initiated using borrowed funds, and the growing Islamic debt and loan markets would help facilitate companies' financing needs, CIMB's Badlisyah said.
“The most important factor that will take Islamic private equity to the next level is the availability of syariah-compliant debt financing, including sophisticated structured financing as well as sukuk in the markets the funds invest in,” he said.
Sales of Islamic bonds in Malaysia have increased 8% to RM15bil in 2012 from the same period of last year, when issuance reached a record RM75.6bil, according to data compiled by Bloomberg. The nation accounted for 60%, or US$108bil, of the global sukuk outstanding in 2011, according to Bank Negara's annual report.
Syariah-compliant bonds in Malaysia have rallied this year after inflation slowed in April to the least since November 2010.
Private equity accounted for a fraction of Malaysia's Islamic finance sector, and the growth potential was an opportunity for the country to build a niche, Azam Azman, managing director of Kuala Lumpur-based CMS Opus Private Equity Sdn, said. - Bloomberg
The country's syariah-compliant banking assets grew 24% to US$137bil last year, or 22.4% of the total, the central bank said. - Bloomberg
“Booming Asian economies, Malaysia included, should be natural targets for sophisticated global capital, whether from private-equity firms in New York, London, or Dubai,” said Sandwick of Wealth & Asset Management. - Bloomberg